International Marketing - Chapter 6: The Political Environment: A Critical Concern

Chapter 6The Political Environment:A Critical ConcernInternational Marketing15th edition Philip R. Cateora, Mary C. Gilly, and John L. GrahamStability of Government Policies Five main political causes of international market instability Some forms of government seem to be inherently unstableChanges in political parties during elections can have major effects on trade conditionsNationalismAnimosity targeted toward specific countriesTrade disputes themselves2Roy Philip Political Risks of Global BusinessConfiscation – the seizing of a company’s assets without paymentExpropriation – where the government seizes an investment but makes some reimbursement for the assetsDomestication – when host countries gradually cause the transfer of foreign investments to national control and ownership through a series of government decrees Mandating local ownership Greater national involvement in a company’s managementAn example of domestication is given on the next slide3Roy Philip Domestication - ExampleA good example of domestication can be seen in the nationalization of Air-India (formerly called as Tata Airlines). Tata owned and operated Air-India and Indian Airlines until they were nationalized by the Indian Government, much to Tata’s chagrin. Very recently, the Indian government has asked Mr. Ratan Tata, chairman of the Tata group, to head an advisory panel to revive Air India. 4Roy Philip Economic Risks (1 of 2)Exchange controlsStem from shortages of foreign exchange held by a countryLocal-content lawsCountries often require a portion of any product sold within the country to have local contentImport restrictionsSelective restrictions on the import of raw materials to force foreign industry to purchase more supplies within the host country and thereby create markets for local industry5Roy Philip Economic Risks (2 of 2)Tax controlsA political risk when used as a means of controlling foreign investmentsPrice controlsEssential products that command considerable public interest Pharmaceuticals , Food, and GasolineLabor problemsLabor unions have strong government support that they use effectively in obtaining special concessions from business6Roy Philip Political and Social Activists (PSAs)Not usually government sanctioned Can interrupt the normal flow of tradeRange from those who seek to bring about peaceful change to those who resort to violence and terrorism to effect changeWorldwide boycott of Nestle productsThe Internet has become an effective tool of PSAs to spread the word Protest rallies against the U.S. – Iraq War7Roy Philip Nongovernmental Organizations (NGOs)Nongovernmental organizations (NGOs) are increasingly affecting policy decisions made by governmentsProtestsLobbyingCollaborations with governmental organizationsMany also are involved in mitigating much of the human misery plaguing parts of the planetRed Cross and the Red CrescentAmnesty InternationalOxfamUNICEFCare and Habitat for Humanity8Roy Philip Violence and TerrorismInternational warfare is fast becoming obsolete as the number of wars have declined steadily since the end of the Cold WarThe greatest threat to peace and commerce for the twenty-first century remain civil strife and terrorismTourism and International education are two industries that have been affected by terrorism.The latest fresh wave of terrorism is seen in the attacks by Sudanese terrorists on ships that sail in what has become known as the “horn of Africa.” 9Roy Philip Cyberterrorism and Cybercrime (1 of 2)The internet is a vehicle for terrorist and criminal attacks to inflict damage on a company with little chance of being caughtBy foreign and domestic antagonists It is hard to determine if a cyber attack has been launched By a rogue state A terroristA hacker as a prank10Roy Philip Cyberterrorism and Cybercrime (2 of 2)Each wave of viruses Gets more damaging Spreads so rapidly that considerable harm is done before it can be stoppedTools for cyberterrorism - can be developed to do considerable damage To a company, An entire industryA country’s infrastructureMounting concern over the rash of attacksBusiness leaders and government officials addressed a Group of Eight conference11Roy Philip Politically Sensitive Products and IssuesPolitically sensitive productsAre perceived to have an effect on the environment, exchange rates, national and economic security, and the welfare of people Are publicly visible or subject to public debate Health is often the subject of public debate, and products that affect or are affected by health issues can be sensitive to political concernThe European Union has banned hormone-treated beef for more than a decade12Roy Philip Lessening Political Vulnerability (1 of 2)Relations between governments and MNCs are generally positive if the investmentImproves the balance of payments by increasing exports or reducing imports through import substitutionUses locally produced resourcesTransfers capital, technology, and/or skillsCreates jobsMakes tax contributionsPolitical parties often focus public opinion on the negative aspects of MNCs whether true or falseAs scapegoats for their own failure To serve their own interests 13Roy Philip Lessening Political Vulnerability (2 of 2)Strategies that MNCs use to minimize political vulnerability and riskJoint venturesExpanding the investment baseLicensing Planned domesticationPolitical bargainingPolitical payoffs14Roy Philip Government EncouragementMost important reason to encourage foreign investment To accelerate the development of an economyU.S. government motivated for economic as well as political reasonsEncourages American firms to seek business opportunities in countries worldwide including those that are politically risky Department of CommerceInternational Trade AdministrationAgencies that provide assistance to U.S. companies Export-Import Bank (Ex-Im Bank)Foreign Credit Insurance Association (FCIA)The Agency for International Development (AID)The Overseas Private Investment Corporation (OPIC)15Roy Philip